A statistically derived adjustment should still be tested against:
Correct Answer
B) The appraiser's knowledge of how the market behaves
Why this is correct: An appraiser's judgment and market knowledge must be used to test if a statistically derived adjustment is reasonable and reflects actual market behavior. Why the other choices are wrong: The client's expectations should not drive the analysis. The assessed value ratio is not a reliable test. Original construction cost records are not relevant to current market value adjustments. Exam tip: Statistics provide a number; appraisal judgment confirms it makes market sense.
Why This Is the Correct Answer
Statistical output can be significant yet economically implausible, so the appraiser's knowledge of market behaviour is the check on whether the adjustment reflects how buyers actually act.
Why the Other Options Are Wrong
Option A: The client's stated expectations for the final conclusion
Client expectations are the one benchmark that must never be used, since deferring to them compromises independence.
Option C: The property's assessed value ratio
Assessed value ratios reflect assessment practice and cycles rather than market behaviour.
Option D: The original construction cost records
Original construction cost measures historical expenditure rather than current contributory value.
Significant Is Not Sensible
Significant Is Not Sensible. A model can be confident and still be wrong about the market.
How to use: When the coefficient and your market knowledge disagree, investigate the model before choosing between them.
Exam Tip
A wrong-signed coefficient — negative value for a desirable feature — is the classic warning of multicollinearity or omitted variables.
Common Mistakes to Avoid
- -Accepting statistical output without a plausibility check
- -Testing an adjustment against assessment or cost data
- -Adjusting toward a client's stated expectation
Concept Deep Dive
Analysis
A statistically derived adjustment is a model output, and a model is a simplification of a market rather than the market itself. Regression can produce a coefficient that is statistically significant and economically implausible — a negative value for an additional bathroom, or a garage adjustment far outside anything paired sales would support — because of multicollinearity, a small or unrepresentative sample, omitted variables, or extrapolation beyond the data's range. The appraiser's market knowledge is the check on that: it asks whether the number is consistent with how buyers in this market actually behave. Where the two conflict, the resolution is to investigate the model rather than to adopt or discard either automatically. The distractors offer checks that are not checks. The client's expectations are the one benchmark an appraiser must never use, since deferring to them compromises independence. Assessment ratios and original construction cost measure other things entirely and cannot validate a market-derived adjustment.
Background Knowledge
Statistically derived adjustments can be distorted by multicollinearity, small or unrepresentative samples, omitted variables and extrapolation. Appraisal judgment tests whether model output is consistent with observed market behaviour.
Real-World Application
An appraiser obtaining a negative bathroom coefficient investigates, finds it correlated with an omitted age variable, respecifies the model and derives a sensible adjustment.
More sales-comparison-approach Questions
Excess land differs from surplus land in that excess land:
A subject property has a 3-car attached garage. The appraiser locates two valid paired sales: Sale 1 (with 3-car garage) sold for $512,000; Sale 2 (with 2-car garage) sold for $497,600. Both properties are otherwise identical — same age, quality, GLA, lot size, and neighborhood — and sold 5 days apart in a balanced market. The appraiser also confirms via public records and listing photos that no other functional or physical differences exist. What is the indicated contributory value of the *third* garage stall?
The most appropriate unit of comparison is determined by:
An appraiser analyzes three paired sales to isolate the effect of a fireplace. In Pair 1, the property with a fireplace sold for $12,000 more; in Pair 2, $10,500 more; and in Pair 3, $13,500 more. All pairs are highly similar and recent. The appraiser selects $12,000 as the final adjustment. Which principle best supports this selection?
A paired sales analysis yields an adjustment of −$15,000 for a property located on a busy arterial street. Later, the appraiser discovers that all three paired properties with arterial exposure also had 20% smaller lots than their non-arterial counterparts — a difference not initially controlled for. What is the most appropriate action per USPAP?
An appraiser identifies two comparable sales that are identical in all respects except that Sale #1 has a finished basement (1,200 sq ft) and sold for $432,000, while Sale #2 has an unfinished basement of the same size and sold for $408,000. Both sales occurred within three weeks of each other in a stable market. The appraiser intends to apply a per-square-foot adjustment for basement finish to the subject property, which has a 1,000 sq ft finished basement. What is the appropriate paired-sales-derived adjustment amount per square foot for a finished basement?
Three sales support $520,000; the borrower's purchase contract is $505,000. May the appraisal conclude above the contract price?
An appraiser develops a $3,200 adjustment for a fireplace based on a single paired sale. The subject has a fireplace; Comparable A does not. The appraiser applies +$3,200 to Comparable A. Later, the appraiser identifies a second pair showing a $4,600 fireplace contribution. The appraiser replaces the original adjustment with $3,900 — the simple average — and applies it to Comparable A. What is the appropriate USPAP-compliant action regarding the adjustment amount?
A comparable sold for $300,000 with the seller carrying a loan 2 points below market, a benefit worth $8,000. What is its cash-equivalent price?
Three comparables adjust to $412,000 (gross adj. 5%), $405,000 (gross adj. 22%), and $410,000 (gross adj. 8%). What is the best-supported value conclusion?
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Previous Question
Two otherwise identical homes sold three weeks apart: Property X (with a corner lot) sold for $372,000; Property Y (interior lot) sold for $360,000. The appraiser adjusts Property Y upward by $12,000 to reflect the corner lot premium when reconciling to the subject, which also has a corner lot. Which statement best describes the flaw in this reasoning?
Next Question
An appraiser uses paired sales to estimate the adjustment for proximity to a public park. Four valid pairs yield adjustments of +$7,200, +$6,800, +$8,100, and +$7,900. The appraiser calculates the mean ($7,500) and notes the range is $1,300. Before applying the adjustment, the appraiser adjusts the $7,500 downward by 5% to reflect weakening buyer preference observed in the most recent two months of listings. Which USPAP requirement does this downward revision most directly satisfy?